Charles Schwab's Q1 Earnings Preview: Analysts Slashed EPS Ahead of The Release, All Eyes On Deposit Outflows Post Banking Crisis

Charles Schwab Corp. SCHW, the biggest publicly listed broker in the U.S., will disclose its first-quarter financial results on Monday, April 17, before the opening of the U.S. market. 

The financial firm came under market scrutiny last month when investors dropped Schwab shares owing to fears of a run on bank deposits. Since the start of the banking crisis in March, the company's stock price has fallen 37%.

Schwab was notably harmed by the sudden rise in interest rates, with its hold-to-maturity bond portfolio recording unrealized losses of $11 billion by the end of 2022, far surpassing its tangible common equity of little over $6 billion.

Read Also: The Latest Analyst Ratings For Charles Schwab 

Schwab’s bank deposits dropped from $443 billion in the fourth quarter of 2021 to $366 billion in the fourth quarter of 2022. The total assets also fell from $667 billion in the fourth quarter of 2021 to $551 billion in the fourth quarter of 2022.

All eyes will now be on the company's deposit flows in the aftermath of the financial crisis. 

Last month, Walt Bettinger, co-chairman and CEO of Charles Schwab, told the Wall Street Journal that "there would be a sufficient amount of liquidity right there to cover if 100% of our bank's deposits ran off."

Analysts Slashed Earnings Estimates In The Run-Up to The Announcement: Consensus estimates for first-quarter earnings per share (EPS) of Charles Schwab have decreased from $0.99 at the end of February to the current $0.90.

• Current consensus revenue projections for the first quarter are $5.15 billion, down from $5.39 billion at the end of February.
• Schwab's reported earnings and revenues for the fourth quarter of 2022 fell short of market expectations.
• Barclays reduced its price target for Charles Schwab from $61 to $56 on April 14 while keeping its Equal-Weight rating. 

Bank of America’s Take On Schwab’s Q1 Earnings: Bank of America reduced Schwab's EPS for the first quarter of 2023 from $0.95 to $0.91, and for the second quarter of 2023 from $0.95 to $0.90, owing to "a sharp increase in expensive short-term liabilities," primarily FHLB borrowings and brokered CDs, as well as higher-than-expected cash sorting activities.

Equity analysts at BofA believe Schwab will not have to sell any of its securities portfolios at a loss in order to provide liquidity, but they don't expect the broker to start growing interest-earning assets until the first half of 2024, once client cash sorting activity has returned to normalized levels and they can begin paying down the expensive supplemental funding.

Is There Already a Lot of Pessimism Priced In? Charles Schwab is trading at $50.78 per share in the late afternoon of Friday (April 14).

This figure is presently even lower than the most bearish analyst's price estimate on Wall Street, which is $56, according to Benzinga pro platform. 

Charles Schwab has an average analyst price target of $71.78, which is 41% higher than the current market price.

Charles Schwab Trades 40% Lower Year-To-Date, 30% Down From Its 50-Day Moving Average

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